Going Around In Circles

Nicholas Weininger already made the point I intended to make in response to this post by Kieran Healy, but it's worth repeating.

Where does Kieran get the idea that libertarians believe the solution to market failure is more markets? In response to any claims of market failure, libertarians tend to make one of the following three arguments:

The minarchist argument: Yep, the market failed. Bring in the government to fix the problem.

The least-bad argument: Yep, the market failed, compared to some utopian ideal of how markets should work. But government will fail compared to some utopian ideal of how governments should work, and any government response will make matters even worse. Better to leave things as they are.

The mischaracterization argument: No, this is not a market failure. It's something else entirely.

Most claims of market failure fall into the third category.

In contexts like electricity "deregulation" in California or the need for socialized medicine in response to our currently "privatized" health care system, the problems are not a result of deregulation or privatization at all. These are not examples of market failure; these are examples of regulatory failure.

Kieran's example of negative externalities due to pollution is also not a market failure. As Nicholas wrote in the comments thread,

The fundamental problem, in the libertarian view, is a lack of well-delineated, well-enforced property rights in the thing (air, water, etc) being polluted. Both of the standard libertarian approaches to pollution? the pollution credit approach and the pure tort-based approach? are based on extending property rights.

Kieran cannot claim that libertarians and other free-marketeers are arguing in a circle unless he first assumes that libertarians already agree with him, which we do not. Kieran is arguing in a circle by assuming the very thing he is trying to prove.

My criticism that Henry is arguing in a circle, on the other hand, is valid, unless Kieran wishes to deny one of the following assumptions:

Microsoft is a monopoly and the real costs of this monopoly are much greater than the inefficient prices Microsoft maintains to extract rents. Microsoft is lazy. It has no reason to respond to its customers - where else, after all, can dissatisfied customers go? Without the threat of exit, Microsoft faces few incentives to improve its service.

The maintenance of competition with respect to Microsoft requires vigorous state intervention

The State is a monopoly and the real costs of this monopoly are much greater than the inefficient prices the State maintains to extract rents. The State is lazy. It has no reason to respond to its customers - where else, after all, can dissatisfied customers go? Without the threat of exit, the State faces few incentives to improve its service.

The maintenance of competition with respect to the State requires...?

Now, at this point, someone might argue that the solution to the monopoly of the State is "voice," i.e. voting. But voting is no solution at all. Suppose I told you that one share of Microsoft stock is $25 (less than the cost of its operating system), and this gives you one vote among many in how the company runs its business. Does this satisfy you? Do you now feel like you have control over the company in the same way you have control, through exit, in a competitive marketplace? If not, why is voice in the context of government decision making any more satisfying?

Contra Kieran, I did not equivocate in my use of the word "monopoly" when describing both Microsoft and the government, nor did I insinuate that Henry is arguing that the State become a manufacturer of operating systems. The State is just as much of a monopoly as Microsoft and the same criticisms which Henry applied to Microsoft apply with just as much force for just the same reasons to the State. Voice does not save the State from these criticisms any more than voice saves Microsoft. To propose that "the maintenance of competition requires vigorous state intervention" is to ignore the lack of competition inherent in the State itself.

Kieran also claims that I "[understate] heroically when [I say] ?the only advantage Microsoft has over Mozilla in this respect is that Internet Explorer comes preinstalled with the Windows operating system.? Well, what other advantage does Internet Explorer have over Mozilla besides the advantage of preinstallation? And why is this a problem that requires such "vigorous state intervention" anyway? Is it really so difficult for consumers who do not like Internet Explorer to download Mozilla? Isn't this even easier than exit in normal market contexts? The product is free, easy to install, and yet this still requires a government response? If this is the case, I would be curious to hear which markets Kieran and Henry do not think require "vigorous state intervention."

Furthermore, this action against Windows Media Player looks to me like protection for RealPlayer, one of my least favorite popular programs in the world. If there should be any government action in the media player market, it should be to BAN that spyware-infested pile of junk.

Newspaper headline: Consumers Win Victory as Business Agrees To Lower Quality of Product.